Karnataka High Court: GST Audit Officer Barred From Adjudicating Same Demand

Introduction

The Karnataka High Court, in Rajapur Minerals Vs Deputy Commissioner of Commercial Taxes, has reiterated a fundamental aspect of GST adjudication: the officer who undertakes an audit under the Karnataka Goods and Services Tax Act, 2017 (KGST Act) cannot subsequently issue the show cause notice and pass the Order-in-Original on the very same issues arising from that audit.

Relying on its earlier ruling in M/s. Presidency Builders and Developers Vs. The Deputy Commissioner of Commercial Taxes and Another, the Court held that such a combination of audit and adjudicatory functions in the same officer infringes the principles of natural justice by creating a reasonable apprehension of bias.

Consequently, a series of proceedings initiated against Rajapur Minerals – including the audit report, show cause notice, Order-in-Original, appellate order and recovery measures – were set aside, and the matter was remanded for fresh adjudication by a different proper officer.

Background and Reliefs Sought

Impugned Proceedings

Rajapur Minerals approached the Karnataka High Court by way of a writ petition, assailing a chain of actions taken under the KGST Act, 2017. The impugned items included:

  • Audit report in Form GST ADT-02 dated 13.12.2023 issued by respondent No.1
  • Intimation of tax in Form GST DRC-01A dated 14.12.2023
  • Show cause notice dated 23.12.2023
  • Summary of show cause notice in Form GST DRC-01 dated 23.12.2023
  • Order-in-Original dated 20.03.2024
  • Summary of the order in Form GST DRC-07 dated 20.03.2024
  • Proceedings/authorization under Section 78 of the KGST Act dated 20.03.2024
  • Order-in-Appeal dated 27.06.2025
  • Garnishee notice in Form GST DRC-13 dated 04.10.2025
  • Form DRC-09 dated 03.12.2025

In addition to seeking quashing of all these proceedings, Rajapur Minerals had, in the alternative, requested that the matter be remanded back to the stage of hearing on the show cause notice, with liberty to pursue all available contentions.

The central challenge was directed at the role played by respondent No.1 – the Deputy Commissioner of Commercial Taxes (Audit)-2. According to the assessee:

  • The same officer conducted the audit under Section 65(6) of the KGST Act.
  • The same officer then issued the show cause notice under Section 73(1) read with Sections 50 and 122.
  • The same officer finally passed the Order-in-Original confirming the demand.

Rajapur Minerals argued that this overlapping of functions compromised impartiality and violated natural justice, particularly the rule against bias.

Petitioner’s Contentions

Objection on Natural Justice and Bias

The assessee contended that once an officer has undertaken an audit and recorded audit objections, that officer has effectively formed a prima facie view on the alleged non-compliance. If that same officer is then permitted to:

  1. Issue the show cause notice on those very audit findings, and
  2. Decide the matter by passing the Order-in-Original,

it would reasonably lead to apprehension that the officer may not approach the adjudication with a fully open and impartial mind.

The thrust of the argument was not that the statute expressly bars such dual roles, but that natural justice demands that adjudication must be perceived as fair and unbiased, especially where the same factual matrix is under scrutiny.

Reliance on M/s. Presidency Builders and Developers

To buttress this stance, the assessee heavily relied on the decision in M/s. Presidency Builders and Developers Vs. The Deputy Commissioner of Commercial Taxes and Another, W.P. No. 28539 of 2025, disposed of on 10.11.2025 by a Coordinate Bench of the Karnataka High Court.

In M/s. Presidency Builders and Developers: